May 2009 - John Mauldin's Outside the Box

John Mauldin reads hundreds of articles, reports, books, newsletters, etc. and each week he brings one essay from another analyst that should stimulate your thinking. John will not agree with all the essays, and some will make us uncomfortable, but the varied subject matter will offer thoughtful analysis that will challenge our minds to think Outside The Box.

This week we look at a number of charts of various parts of the credit markets to see what kind of progress is being made on getting back to 'normal' or to a 'new normal.' And my friend Prieur du Plessis shows us there is reason to believe that we have seen the worst.

'This too shall pass' are words we should all take to heart. Things will neither stay on permanently high or low plateaus. Those doom and gloomers who expect the world to keep devolving back to some pastoral age of scarcity where we will all need those guns and freeze dried food will be disappointed. We are simply hitting the re-set button on many of our institutions and businesses, and while the adjustment is painful, we will eventually get through it. Today's Outside the Box is a kind of map that tells us where we are in the process....

Occasionally I need a fast answer. So I'll run a Google search, and 2.54 MILLION responses later I've learned how to handle a Thanksgiving turkey-roasting crisis but nothing useful about Turkey's financial crisis.

There's certainly no shortage of data these days. But what's in all-too-short supply is understanding. As investors, what creates opportunities isn't access to data but to ways of thinking about the world. I created Outside the Box precisely for this reason, to share with you some of the best thinkers in the world and some of the best ways to think about investments....

Nearly everyone I talk with has the sense that we are at some critical point in our economic and national paths, not just in the US but in the world. One path will lead us back to relative growth and another set of choices leads us down a path which will put a very real drag on economic growth and recovery. For most of us, there is very little we can do (besides vote and lobby) about the actual choices. What we can do is adjust our personal portfolios to be synchronized with the direction of the economy. The question is 'What will that direction be?'

Today we are going to look at what I think is a very clear roadmap given to us by Dr. Woody Brock, the head of Strategic Economic Decisions and one of the smartest analysts I have come in contact with over the years. This week's Outside the Box is his recent essay, 'The End Games Draws Nigh.' For those who have the contacts in government, I urge you to put this piece into the correct hands so that Woody's very distinct message gets out. I think this is one of the most important Outside the Box letters I have sent out....

It has long been my contention that we are entering an extraordinary period of time in which using historical analogies to plot market behavior is going to become increasingly problematical. In short, the analogies, the past performance if you will, all break down because the underlying economic backdrop is unlike anything we have ever seen. It makes managing money and portfolio planning particularly challenging. Traditional asset management techniques just simply may not work. Buy and hope strategies may be particularly difficult to navigate.

Part of the reason we are co challenged in our outlook is that we are experiencing a deleveraging on a scale in the world that is absolutely breath-taking in its scope. And to balance that, governments are going to have to issue massive amounts of sovereign debt to deal with their deficits. But who will buy it, and at what price? And in which currency? This week's Outside the Box gives us some very basic data points that illustrate the challenge very well. But the problem is that even though we can see the challenge, it is not clear what the final outcome will be, other than stressful volatility as the market reacts....

If you ever look at the footnotes, you know that 'Past performance is no guarantee of future results.' That said, by the time you've gotten a bit of gray hair, you realize that there are few teachers as good as history. 'But this time it's different!' is the cry of people that are usually just about to lose a bunch of money.

Read the analysis below from my good friend George Friedman at STRATFOR on the latest new thing, the swine flu outbreak....

Late last week a letter from Jim Welsh crossed my desk. I started reading and found myself being pulled through his very thoughtful letter. I have not met Jim, but think this letter is worthy of an Outside the Box.

Jim Welsh of Welsh Money Management has been publishing his monthly investment letter, "The Financial Commentator", since 1985. His analysis focuses on Federal Reserve monetary policy, and how policy affects the economy and the financial markets....